Stamp Duty Ready Reckoner

Stamp Duty in Maharashtra is leviable on every instrument (not transaction) mentioned in Schedule I to the Maharashtra Stamp Act, 1958 (“the Act”) at the rates mentioned in that Schedule. An Instrument as defined under the Act includes every document by which any right or liability is created, transferred, limited, extended, extinguished or recorded.

Under the Act, stamp duty on instruments relating to immovable property may be levied on any one of the following three basis :

the Fair Market Value of the property;

the Consideration mentioned in the instrument; or

the Area of the property involved.

Duty on certain instruments is on the basis of consideration recorded in the instrument or market value of property, whichever is higher. The term “market value” is defined under the Act to mean the higher of :

the price which the property covered by the instrument would have fetched if sold in an open market on the date of execution of the instrument; or

the consideration as stated in the instrument. The instruments where stamp duty is levied on the higher of the consideration or Fair Market Value are as follows:
Conveyance
Lease Deed
Gift deed
Transfer of lease
Development Rights Agreement
Power of Attorney granted for consideration and authorising to sell an immovable property
Power of Attorney which is for development rights
Trust deed
Partition deed
Release deed
Partnership deed – if the capital contribution is brought in by way of property
Dissolution/retirement deed – if a partner who did not bring in a property takes it on dissolution/retirement
Settlement deed
Instrument of Exchange of property

Section 32A of the Act read with Rule 4 of Bombay Stamp (Determination of True Market Value of Property) Rules, 1995 empowers the Joint Director of Town Planning and Valuation to prepare an Annual Statement of Average Rates of market value for different types of immovable properties situated in every tahsil, municipal corporation or local body area. Pursuant to this, the Joint Director of Town Planning and Valuation prepares an Annual Statement of Average Rates of market value for different types of immovable properties situated in every tahsil, municipal corporation or local body area. This Statement is prepared for a Calendar Year, i.e., 1st January to 31st December of every year and it remains in force for the entire year. The Statement is popularly known as the “Ready Reckoner”. While working out the Average Rates of land and buildings for the Ready Reckoner, the concerned officers are required to take into account the established principles of valuation and any other details that they deem necessary.

Hence, the Ready Reckoner is applicable for the valuation of immovable properties in case of certain instruments.

Ready Reckoner
The Ready Reckoner for Mumbai city divides Mumbai City/Suburbs into various `Village’ numbers and Names. Each Village is further sub-divided into Zones & Sub-Zones. Each Sub-Zone has different Cadastral/City Survey Numbers for various properties.

The Reckoner gives the market values for 5 different types of properties, namely:

Shops/Commercial
Offices
Industrial Property
Residential Property
Developed Land

There are 9 steps to using the Ready Reckoner which are as follows :

(i) F ind the Village Number and Village Name in which the property is located
(ii) A scertain the Zone and the Sub-Zone
(iii) F ind out the CTS No. of the property
(iv) D etermine the type of property, e.g., Residential, Office, etc.
(v) Calculate the Built-up Area of the Flat/Office.
(vi) F ind out the Market Value for the type of Property
(vii) A scertain if there are any Special Factors as prescribed in the Reckoner
(viii) M ake the prescribed Adjustments to the Market Value
(ix) T he Market Value of the Property for Stamp Duty purposes = Adjusted Fair Market Value Rate * Builtup Area of the Property

It is essential to note that the fair market values given in the Ready Reckoner are per square metre of Built-up Area. Hence, the area of the flat must also be converted from square feet to square metre and must be expressed in terms of the Built-up Area. The Reckoner calculates the Built-up Area as Carpet Area * 1.20. The Carpet Area in common parlance means the wall-to-wall area of the flat, whereas the Built-up Area also includes the area of the walls. In addition, there is the concept of Super Builtup /Saleable/Loading Area which is very popular amongst the Builders. It means the Built-up Area plus the pro-rata area for common facilities such as lift, lobby, staircase, passage, etc. It is very important to bear in mind that the stamp duty valuation is neither on the basis of the carpet area nor on the basis of the saleable/super builtup area. It is the built-up area alone which is relevant for this purpose. The conversion rate from sq. metre to sq. feet is 1 Sq. Mtr. = 10.764 Sq. Ft. The Maharashtra Flat Ownership Agreement Act, 1963 now makes it mandatory to mention the carpet area in the Agreement. Hence, arriving at the built-up area is a factor of 20% over the carpet area. However, if the built-up area is mentioned in the Agreement, then that alone must be considered. In cases where only saleable area is mentioned, it may be worthwhile to obtain a Certificate of the Carpet Area from a valuer or from the Municipal Tax Bills.

One of the Special Factors on account of which an adjustment is to be made is whether the building in which the property is located has a lift. Depending upon the number of floors in the building and the fact whether or not the building has a lift, an increase or decrease must be made in the value of the property.

Another adjustment is to be made on account of depreciation. The Reckoner prescribes different depreciation rates based on the age of the property. The lowest rate is Nil for a 2 year old structure and the highest depreciation rate is 70% for a structure which is 60 years old or more. Depreciation is calculated on the adjusted fair market value of the property as given in the Reckoner. The stamp authorities insist upon the proof of the age of the building before allowing the claim of depreciation. Some of the proofs relied upon are the Building Occupation Certificate (OC), Municipal Assessment, etc.

The example given below illustrates the method of calculating the fair market value of a residential flat by using the Ready Reckoner. The facts are as follows :

(i) R esidential Flat at Nepean Sea Road
(ii) The Carpet Area of the flat is 1,800 sq. ft.
(iii) T he Building was constructed in 1976 (38 years old) and it has 15 Floors.
(iv) The Agreement Value of the flat is Rs. 10.50 crore and the stamp duty on the basis of the Agreement Value @ 5% comes to Rs. 52.50 lakh.

The  fair  market  value  calculation  would  be  done  as under :
Village name and number : malabar hill & Khambala hill – no. 7
Zone/Sub-zone : 7/61 CTS no. of plot – 1/ 600
Built-up area of flat : carpet area 1,800×1.2  = 2,160 sq.ft
= 2,160/10.764 = 200 sq. mtr.
Built-up area rate/sq. mtr. : Rs. 8,50,100 depreciation as per table : 40%
add for lift : 10%
Basic   rate   +   10%   for   lift   (-)   40%   depreciation   : rs. 5,61,066 area (sq.mtr)    : 200 sq. mtr.
Value as per reckoner : Rs. 11.22  crore agreement Value    : Rs. 10.50 crore
Value for levying duty – higher of two Values:  Rs. 11.22 crore
Stamp duty on reckoner Value    : Rs. 56.10 lakh
Stamp duty on agreement Value    : Rs. 52.50 lakh
higher Stamp duty due to reckoner :Rs. 3.60 lakh

Closed garages or parking spaces under stilts are valued at 25% of the rate applicable to flats in that zone. Open (to sky) parking spaces are valued at a rate equal to 40% of developed land rate in that zone.

The  ready  reckoner  also  lays  down  the  method  of valuation of tenanted property. the accepted method of valuation  is  the  rent  Capitalisation  method.  there  are two methods of valuation depending upon whether the tenanted  area  is  less  than  the  fSi  available  or  equal to  or  more  than  the  FSI available.  Further,  in  case  the tenants are given any alternative accommodation, then an adjustment is required to be made for the same.  For instance, where tenanted area is equal to/more than FSI available, the valuation of the property is 112 times the monthly rent. however, this concessional valuation method is only available in case of those properties where there is documentary evidence of tenancy for 5 years or more  or  at  least  since  30th  march  2000.  The  tenancy proofs  considered  are  ration  Card,  tenancy  receipt, municipal tax Bills in name of tenant, telephone bills, etc.

The  ready  reckoner  Values  may  give  absurd  results in the event there is a fall in the property values in a particular  year.  For  instance,  under  the  current  ready Reckoner the value of all Office premises in a certain area at  nariman  point  is  Rs.  48,120  per  square  foot.  While some buildings may be able to command such prices, not all buildings and within them not all offices can get such an astronomical price!

Of late, there is a new trend in the reckoner. the same CTS  no.  appears  in  two  different  zones  of  the  same village with different rates for the same CTS no. to give an example, in the Colaba division, there is one CTS no. which has a rate of Rs. 6,13,100/square metre and also a rate of Rs. 3,44,700 per square metre, i.e., a variation of more than 170%! there are several such duplications in the reckoner. What does one do in such a scenario – adopt the lower of the two rates? the registrar’s answer is very clear – adopt the higher of the two rates!!

The average increase in the rates in the 2015 reckoner over the 2014 is 10%. thus, while the State Government has brought down the stamp duty rates to a maximum of 5%, it is increasing the reckoner rates every year.

Valuation of Development Agreements
A recent feature in the Ready Reckoner is a specific valuation  mechanism  for  development   agreements  or DAS. under a DA, a land owner grants a right to a developer to enter upon his land and develop the same. the  consideration  for  the  same  may  consist  of  one  or more or a combination of the following modes:

(a)    DA for Money – where the consideration paid by the developer is money. In this case, the valuation for stamp duty is straight forward since it is akin to  a  transfer  of  land  and  the  reckoner  rates  for developed land would be applicable.

(b)    DA for Area Sharing – where the consideration by the developer consists of built up area in the property under development. thus, under this case, the land owner would give a da of certain portion of the land retaining the balance area. on this balance area, the developer would carry out a construction for the owner. In this case, the valuation for stamp duty gets complicated. In cases of da with area Sharing, one question which always arose when working out the land owner’s taxation was that, how should the consideration be valued? Some decisions have held that the cost of construction of the building on the owner’s portion of the land should be treated as  the sale consideration – NS Nagaraj[TS-744- ITAT-2014 (Bang)].

The  Bombay  high  Court,  in  cases  of  Prabha  Laxman Ghate vs. Sub Registrar and Collector of Stamps, AIR 2004 Bom. 267 and Chandrakant B. Nanekar vs. State of Maharashtra, PIL No. 54 of 2011, has held that in a da with Area Sharing where flats are constructed by the developer on the owner’s land area, it is clear that there is no transfer of property or interest in property by the owner in favour of the developer. All that is provided is that the developer shall develop the property and reserve for the owner certain flats on the said property. The owner, therefore, continues to be the owner of the flats, which are reserved for him on his own land. Therefore, there was no question of the owner being called upon to pay stamp duty on such flats. The State Government has issued a Circular dated 1st March 2014 to the same effect.

accordingly, in the case of a da with area Sharing, the reckoner now provides for a valuation mechanism which adopts the higher of the following two values as the valuation:

(i)    Construction cost of land owner’s area; plus monetary consideration, if any, to the owner. in case any deposit is paid to the owner, then interest on the same must be considered @ 10% p.a. or a higher rate, if expressly provided in the DA.

or

(ii)    Area for which da given to developer * rate for developed land under the reckoner

In  working  out  the  above  values,  fungible  FSI  allowed under  the  development  Control  regulations  should  be added and fungible FSI premium payable for the same should be reduced. further, development fees payable by the developer to the BMC should be added in valuing the construction cost of land owner’s area.

Further, if the developer were to retain any flats/offices/ shops for his own personal use under a da, then from the market value of such premises based on the reckoner, the cost of construction  of  the  new  premises  would  be reduced. only the balance would be leviable with stamp duty.

(c)    DA for Revenue Sharing – where the consideration to the owner consists of a share in the revenue earned by the developer from selling the property. Under this case, the land owner would give a DA  for the entire land and receive a share of the gross revenue. In this case, the valuation for stamp duty also gets complicated and is explained below.

In the case of a DA with revenue Sharing, the reckoner provides for a valuation mechanism which adopts the higher of the following two values as the valuation:

(i)    Owner’s share as per allowable use as on date as per today’s selling price * 0.85; and monetary consideration, if any, to the owner.  In case  any deposit is paid to the owner, then interest on the same must be considered @ 10% p.a. or a higher rate, if expressly provided in the DA.

or

(ii)    Full area for which DA given to developer * rate for developed land under the reckoner.

Importance of Stamp Duty valuation
The  Stamp  duty  valuation  of  an  immovable  property  is increasingly becoming important also as a reference point under various other laws:

(a)    Section 50C of the income-tax act states that if the sale consideration  received for transfer of a land  or building or both, held as a capital asset, is less than the value adopted for payment of stamp duty, then the value adopted would be deemed to be   the sale consideration. in this context, the decision of the Kolkata itat in the case of Chandra bhan Agarwal, [2012] 21 taxmann.com 133 (Kol. iTAT) rendered in the context of fair market value u/s. 50C is very appropriate to our case:

“….The expression ‘fair market value’, in relation to any immovable property transferred, means the price the immovable property would ordinarily fetch on sale in the open market on the date of execution of the instrument of transfer of such property. The fair market value is the best price which vendor can reasonably obtain in the circumstances of the particular case and what is required to be done  for the ascertainment of such market value is to ascertain the price which a willing, reasonable and prudent purchaser would pay for the property. In ascertaining that, all factors having any depressing or appreciative effect on the value of the property have to be taken into account ….. The value of    a property cannot be stated in an abstract form and it varies from time to time and can only be stated with reference to so many factors, i.e., the locality, situation, general appearance in the area, availability of shopping and marketing facilities, condition of public ways and transportation, availability of utilities, and many other things. …….
The provisions of section 50C, in the present context, state the  fair  market  value  and  value  is estimation of a probable price of the property, i.e., the deeming fiction. The deemed value is to be ascertained and for that, as discussed above, section 50C has postulated certain conditions. In the instant case, the fair market value estimated by DVO has been challenged as DVO’s report has no basis, because it has not discussed any  of the factors, such as locality, situation, general appearance in the area, availability of shopping and marketing facilities, conditions of public ways and transportation, availability of utilities etc. and etc. The DVO’s report is a cryptic one, and the assessment is based on value as assessed by Registrar and that also on the basis of additional stamp duty asked for. …………..  In this case,  the DVO has not ascertained any market value which a willing, reasonable and prudent purchaser would pay for this property. Even the DVO has not considered the factors having any depressing or appreciative effect on the value of the property.”

Thus,  the  ITAT  has  very  clearly  stated  that  even  the valuation must consider all value depressing factors.

(b)    Similarly, section 43Ca of the income-tax act provides that if the sale consideration received for transfer of a land or building or both, held as stock- in-trade, is less than the value adopted for payment of stamp duty, then the value adopted would be deemed to be the sale consideration.

(c)    If an individual or an huf gets any immovable property without consideration, the stamp duty value of which exceeds Rs. 50,000 then the stamp duty value would be treated as his income u/s. 56(2). Similarly, if he buys any immovable property for a consideration which is lower than the stamp duty valuation by Rs. 50,000 or more, then the difference would be treated as the income of the buyer.

(d)    The  maharashtra  Vat act  levies  Vat  for  builders under the Composition Scheme @ 1% of the value adopted for payment of stamp duty or the agreement value, whichever is higher.

(e)    The property tax is levied based on the Stamp duty ready reckoner Valuation.

(f)    The final nail in the coffin is the Fungible FSI Premium payable to the BMC under the development Control regulations.  It is calculated as a percentage of the reckoner Value of the property.

Thus,  the  reckoner  value  is  becoming  an  increasingly important source of revenue not just for the Stamp Office but also for other revenue departments.  it is one arrow which Kills Six Sparrows!

Conclusion
Several Supreme Court and high Court decisions have held  that  the  ready  reckoner  Valuation  is  not  binding on the assessees and it is at best a prima facie guideline for  valuation.  inspite  of  that  the  registration authorities insist  upon   following  the  reckoner  with  the  result  that the property buyer has no option but to pay or litigate. an added consequence of this is now that the property seller could also end up paying tax on deemed income in respect of the property sold by him. hence, the reckoner is a very dangerous sword in the hands of the State Government which needs to be wielded with great discretion or else   it runs the risk of playing havoc in property transactions. the decision of the allahabad high Court in the case of Praveen Kumar Jain [TS-10-HC-2015(All)] against steep and  arbitrary  increases  in  the  Stamp  duty  reckoner values is an eye opener in this respect:

31.    The steep and mechanical increase or decrease in circle rates makes the life dearer. In a country where more than 35% population is below the poverty line, the power conferred by Stamp Act to provide circle rate for the purpose of minimum evaluation of property to ascertain stamp duty increases the living cost where the citizen    is the ultimate sufferer. In a welfare society, the District Magistrate or the Collector does not have got power to discharge their obligation mechanically without assigning reason, more so where the citizens have to pay from their pocket with regard to sale and purchase of property.

32.    In a welfare State, the Government is supposed to act or work in a just and fair manner and people should not be burdened to pay stamp duty by increase of circle rate every year mechanically. It should not be forgotten that the essential requisite for the levy of stamp duty by the State is the existence of an instrument evidencing a transaction by the citizens. The transaction is convened to the instrument whereby property is transferred. The provision does not seem to confer a power to increase stamp  duty  mechanically  to  generate  revenue   by  the State.

33.    Once a circle rate is provided after making necessary exercise in pursuance to Rules (supra), there appears to be no reason to revise it mechanically, that too without taking note of the ground realities and the poverty ridden society. …………
Life should not be made overburdened by swift change of law/circle rate to generate fund without utilising the available resources honestly with fairness to the last penny. Moreover, the purpose of Stamp Act does not seem to generate revenue as regular source of revenue like tax statutes and other alike enactments.

Decision must be conscious keeping in  view  the ground financial capacity/problem of the commoners or lower and middle class of society who constitute the bulk of the country.

….To sum up, while issuing the circular or order in pursuance to Stamp Act read with 1997 Rules(supra) framed thereunder, it shall be obligatory on the part of the Collector/District Magistrate to assign reason and do necessary exercise in view of Rule 4 read with Rule 5 of the Rules to ascertain necessity to increase or decrease circle rate. Since the impugned order does not contain any reference to the exercise done with reference to Rule 4 read with Rule 5, it does not seem to be sustainable and violative of statutory mandate.

34.    It appears that the Collectors/District Magistrates all over the State changed the circle rates mechanically without taking a note of the legal proposition discussed hereinabove, which does not seem to be justified.  It shall be appropriate that the Chief Secretary/Principal Secretary, Revenue should circulate the present judgment to all the District Magistrates/Collectors for future guidance during the course of revision of circle rates. Henceforth, circle rate shall not be revised except keeping in view the observation made in the body of present judgment.”

In conclusion, we may repeat the words of india’s former prime minister Dr. Manmohan Singh:

“I think as far as black money in real estate is concerned, unfortunately that is a reality and one way out of this would be to lower the stamp duties,…… stamp duties in the country are a big obstacle to cleaning the mess with regard to transactions in real estate…”

Is anybody listening?